Instead of responsibly managing our nation’s finances, the government shutdown was a result of bickering between the two political parties concerning how much...
Rather than address the current deficit issues, which have grown steadily over the last 25 years, the Senate failed to provide the votes needed to keep the government open by demanding even more additional welfare spending, writes John Whitmore Jenkins.
In my first class many years ago at the Harvard Business School, our finance professor presented the two basic theories of institutional finance, “Eat Well”“Sleep Well.” Understanding economic and geopolitical uncertainties of the times, the Sleep Well practitioners maintain a strong equity position, do not spend beyond their means, and keep any debt assumed relatively short-term and manageable. In contrast, in anticipation of rapid long-term growth, the Eat Well group engages in extended spending deficits that are funded by highly leveraged equity, greatly enlarged with long-term debt. Our elected representatives have opted for the nation to Eat Well, rather than Sleep Well. Instead of responsibly managing our nation’s finances,that has gone for almost two weeks was a result of bickering between the two political parties concerning how much increased debt and spending would be authorized. Once again seeking to raise our nation’s debt limit, our elected representatives have agreed to spend more than they think the public is willing to pay for.Rather than address the current deficit issues, which have grown steadily over the last 25 years, the Senate failed to provide the votes needed to keep the government open by demanding even more additional welfare spending. With Congress either unwilling to reduce major federal program spending or to cut waste, fraud and abuse from current programs, as attempted previously by Elon Musk’s Department of Government Efficiency, no political spending compromises seem possible.games against their political opponents. This soap opera, which we have seen many times before, will continue to be played out in the media, with each party attempting to justify its position over the other when neither has enacted responsible fiscal policies over the past 25 years. The shutdown will continue until one party can no longer withstand the pressure from its constituents or until it has a political advantage.The unchecked spending growth of the welfare/administrative state creates a vicious economic requirement of transferring wealth from the private sector to the public sector. With increased mandated public expenditures, the federal government must either borrow more funds or collect increased taxes from the private sector. Either option slows economic growth, which would provide a larger tax base available to reduce the debt. Neither is politically viable with the voting public., which is 13% of total federal expenditures and about half of the total discretionary spending amount, according to the Congressional Budget Office. Interest expense in 2024 already exceeds the Defense budget of $850 billion. In 2001, the Defense budget was designed to support military operations on two fronts, in Western Europe and Southeast Asia. Recognizing this diminished military capability, the Trump administration called for the need to increase military spending to meet the challenges of the new two or three-front Cold War.The most concerning aspect of the latest episode of congressional budget mismanagement is that no one in Congress has attended a class explaining that borrowing funds for current expenditures incurs interest costs until the debt is repaid. Interest rates charged are determined by supply and demand, as well as the lender’s risk evaluation of the borrower’s ability to repay the debt. The national debt of $37 trillion is growing unabated, which may cause higher interest expenses. Investors may also demand higher interest rates as divisive American politics continue to dominate our fiscal economy. Higher federal interest costs on this debt are already creating spending problems. No one can make these numbers work for our good much longer. A long shutdown may make financial corrections a bridge too far to overcome. If our Founding Fathers were to return here 250 years later, they would be dismayed to find that the highly divided elected representatives, upon whom they granted primary powers in the Constitution, have so far failed tragically to perpetuate this union to lead a second great American century. John Whitmore Jenkins is the author of “Looking Through a Glass Darkly: Divided America and the Gathering Storm,” “The Blessed Generation: Fifty Years on the Cutting Edge of Rapid Change” and “The Earth after Net Zero Fifty: What Happens When the Lights Go Out?”Grapevine basketball coach sentenced to 40 years in prison for producing child pornography
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